What Obama Should Have Said on the Public Option

Last night, President Obama offered a pretty good conceptual defense of the public option. But things got a bit weirder when he drilled down to the specifics. Observe:

I have no interest in putting insurance companies out of business. They provide a legitimate service and employ a lot of our friends and neighbors. I just want to hold them accountable. The insurance reforms that I’ve already mentioned would do just that. But an additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchange. Let me be clear – it would only be an option for those who don’t have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance. In fact, based on Congressional Budget Office estimates, we believe that less than 5 percent of Americans would sign up.

Despite all this, the insurance companies and their allies don’t like this idea. They argue that these private companies can’t fairly compete with the government. And they’d be right if taxpayers were subsidizing this public insurance option. But they won’t be. I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects.

In other words, there's no reason to worry about the public plan: It won't really work and very few people will be allowed to use it.

This is, to be sure, an accurate description of the public plan that's in the Energy and Commerce compromise, and in the HELP Committee bill. But I don't understand the rhetorical approach. This is one of those situations where opponents of an idea will be exactly as aggressive and hyperbolic no matter how watered down the idea gets. So why compromise on it rhetorically?

Another way of making this argument would be to say that an additional step we can take to keep insurance companies honest and control costs is by making a not-for-profit public option available to all Americans. This option will work like Medicare and, following Medicare's example, will use its large customer base to negotiate deep discounts on drugs and treatments. An array of outside analysts, including the Lewin Group, which is owned by a private health insurance company, and the Commonwealth Fund, have estimated that this could save the average American family 20 percent to 30 percent on their premiums, and it would force private insurers, who have let costs skyrocket in recent years, to compete aggressively to retain business.

Insurance companies and health-care providers don't like this provision, as it will mean lower profits for them. Republicans don't like this provision because it means a much greater government role in the health-care sector. This provision is not the whole of health-care reform, and it is not non-negotiable. Reasonable people can disagree on it, and the administration will bow to the will of Congress. But given the ceaseless rise in health-care costs and the burden on American families and businesses, it's something that the American people should consider and that the administration thinks Congress should support.

Then, if you have to bargain it down, or give it away, you can do that. I am not, as my readers have unhappily learned, an absolutist on this question. But at least you make your case, you put the administration on the side of lower premium costs, and you give the American people a chance to hear the arguments and weigh in on the question. And if, after all that, you have to give it away to get the bill passed, at least you're giving away something big, and can negotiate accordingly. And then, if your bill fails to control costs down the road, you can cluck your tongue and say, "well, we tried it your way..."

Agreed. This was his big false step in what was otherwise a pretty good speech. And he really missed an opportu7nity to explain that Medicare is a "government-run plan" that relies on private health care providers to deliver services. The public option could have been that too, but he is saying no already.

I still hold out hope that it could be based on a Kaiser-type not-for-profit entity that is big enough to provide efficient care, but at the very least it has to start out scalable so that it can be expanded to other people.

I don't think Obama is sensitive enough to the dismaying prospect many individuals will face of having to fork over money to for-profit insurers. He ought to really ensure that there is a non-for-profit alternative if ther eis a mandate.

Yes but include the necessary part of the argument at the beginning of the speech, where Obama illustrated without saying it that the insurance companies are killing people for profit. What is the moral character of these people? Those who don't want a public option should be reminded that the stance of the insurance companies on the reform is, "Please get more people into the system, please make a law that we have to cover everybody, so we don't have to kill people for a competitive profit."

"And if, after all that, you have to give it away to get the bill passed, at least you're giving away something big, and can negotiate accordingly."

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What did we get for giving away Single Payer? Was it the 80% that everyone (other than the GOP) agrees on?

So at this point with the Public Option so clearly being off the table, what are we getting in return for it? Stuff that Snowe is rolling out that you point to as an error, or that was in the Baucus Caucus bill about State-Level Insurance Industry Regulation? It doesn't see like we're having those removed from the table.

Far more likely is what most of us watching this predict: you take the Public Option off the table and rather than getting anything for removing it, you are flashing your weakness and desperation to get *any* bill. Which makes the people who want to gut the bill, and are being paid to do so, more empowered to keep gutting it.

$900B? A Ross and the Blue Dogs see that figure and are going to say they can't sign on unless it's $800B, which gets more pieces thrown under the bus.

What really is getting *added* to the process in return for the PO getting tossed under the bus, Ezra? Any great new additions to the HELP and Tri-Com bills? Or is the PO just one of many things, including the cost, that are going to be sawed off those bills to buy off the votes of Snowe, Nelson, Conrad & Co?

EzK wrote:
"In other words, there's no reason to worry about the public plan: It won't really work and very few people will be allowed to use it."

I had the same reaction you did at first, but I'm beginning to think that the biggest strength of the public plan option is not in its ability to drive down premium costs, but to, in the long-term, via comparative effectiveness research, drive down treatment costs. Private insurers simply won't do that.

So regulations (god help us) and the strength of the exchange will have to be relied upon to drive down premium costs and drive up efficiency right away. And even a smaller public plan option in the exchange (and I hope it's only one exchange and not the state-based lunacy) will put pressure on private insurers to behave b/c the threat of exchange expansion will be there. There's the trigger, by the way. We've had one since the House bill dropped. I wish someone would explain that to Queen Olympia.

High prices are necessary in our system.
Insurance is gambling. You are afraid that something is going to happen that you cannot or do not want to afford, and the insurance company is gambling that it will not happen. As the house, the insurance companies get to lay their bets off on large numbers, and thus they are guaranteed to win. If a visit to the doctor cost you $10, would you buy insurance? $25? $50? $100? $1000? $5000? The more expensive the event, the more fear, and thus the more necessary the insurance. If you become comfortable with one price, then the price is raised. A system based on unregulated private insurance has to have ever increasing high prices to operate. The question becomes, how do we remove the fear? Look around the world and the answer is clear!

yeah, but there might be a need to drive down expectations for the public plan too. Once the private insurance companies resign themselves to its existence and decide to compete; odds are, they'll compete well (at least at first). They'll be able to use their economies of scale w/other lines of business to lavish added bells and whistles on their exchange plans making them more attractive and potentially cheaper than the public option at first.

Right out of the gate, I'd imagine the other plans in the exchange will do such a good job competing that there will be a bit of, 'why was everyone fighting so hard for this lousy plan?'

I think the House and the president are, how shall I put it, expressing what seems like a contradicting policy on purpose. Being disingenuous. I think they're banking on being able to revive a better option in conference.

"This option will work like Medicare and, following Medicare's example, will use its large customer base to negotiate deep discounts on drugs and treatments"

1. It will have a "large customer base" but the vast majority of people's health insurance won't change? In order to have a "large customer base" many people are going to have to switch to it. So - no other way around it for this to work - reform will have to be radical.

2. How, pray tell, will it obtain a "large customer base" in the first place if it is not subsidized or given any other preferential treatment?

3. Why is it that the same people who complain incessantly about how Wal-Mart is ruining the standard of living for workers are greatly enamored of the government using "large customer base to negotiate deep discounts"?

4. "This option will work like Medicare" - that's right; its customers will not have to pay its full real cost, because it will be subsidized.

5. This the U.S. government you're talking about here when you say "public option." Forgive me if I'm such an ideologue that I'd like (a) a great deal of forethought given by the architects of the plan into precisely how it would work, rather than a bunch of airy fairy promises based on nothing even remotely concrete, and (b) ironclad guarantees that it won't be given any preferential treatment (which of course rules out its ever obtaining a "large customer base").

ostap666 - 1) The point is that people's insurance doesn't HAVE to change. The customer base happens because uninsured people will join and currently insured people who like the public option more will choose to switch.

2) Because it will be cheaper and more effectively run. If that turns out not to be the case, no one will join.

3) Because there's no risk of doctors being paid $5 an hour. Also, this is a non-sequitor and is irrelevant.

4) No it won't, it will be supported by premiums. You're factually wrong here.

5) There's plenty of forethought here, and after passage there'll be 3 more years of tinkering before the plan is offered. Again, you're flat wrong that subsidization is necessary for cost competitiveness and competition with private insurance.

Ezra - Obama didn't discuss the public plan in that way because he can't. It's simple, a public plan that pays 20-30% less than private insurers = government takeover of health care. This is the public's biggest fear. People aren't stupid. Where does that 20-30% savings come from? Paying doctors and hospitals less OR restricting treatment (rationing).

In this post you're demonizing doctors and hospitals at the same time you're advocating a massive increase in the size of the federal gov't. Not a recipe for winning public support.

and it would force private insurers, who have let costs skyrocket in recent years, to compete aggressively to retain business

I'm sorry Ezra but you don't get it. What about insurers are filing lawsuits against hospitals and vice versa do you not get? You don't think they're competing aggressively? Two hospitals in my state have lawsuits against Horizon BCBS and they in turn have cross complaints against the hospitals for deceptive business practices. Bayonne Medical Center and Newton Medical Center. The point is that these hospitals are to the breaking point. 7 hospitals have been into bankruptcy since 2007. Its not about reducing the cost its about reducing the utilization. At some point you've wrung every cost you can out of the system if you don't affect how people USE healthcare.

There are great savings to be realized from a public or non-profit option that (a) caps dr salaries in return for letting them practice medicine and not deal with an insurance co; (2) minimizes administrative overhead; (3) doesn't have high CEO salaries, fancy retreats and shareholder dividends; (4) shares info on effectiveness and reduces the incentives for ineffective and costly treatment.

Serious docs who want to practice medicine can live within such a system, but those who (like insurance cos) see patients as a profit center can't compete. But people who hate the gov't and like paying for pricey insurance that they treat like a Porsche can still do so to their heart's content.

erobin1: "I had the same reaction you did at first, but I'm beginning to think that the biggest strength of the public plan option is not in its ability to drive down premium costs, but to, in the long-term, via comparative effectiveness research, drive down treatment costs. Private insurers simply won't do that."

CER (at least as I understood it) wasn't a feature of public option per se, it's a separate proposal. What insurance co's -- private, public option, or other -- would do with CER findings would be up to them, but while I'm no expert, my guess is private insurance companies would be eager to learn about alternative treatments leading to equivalent health outcomes.

Ezra's summary of Obama's "defense" of public option -- "In other words, there's no reason to worry about the public plan: It won't really work and very few people will be allowed to use it" -- is accurate, I think.

Given Ezra's own sketch of what a stronger defense would have been, it remains disappointing he's part of the conventional wisdom that it's nonessential. The value is (or would have been) in accountability and transparency -- it could have been a place where people can immediately vote with their feet and checkbooks when BC/BS et al screw them over in "innovative" new ways. Both Ezra and Obama seem to think they've imagined every way private insurance can do that; I suspect they're wrong. Either you kill basic health insurance via private insurance companies with single payer, or you set up competition with them. What we're likely to get instead is neither, meaning private insurors will be unchallenged except by the slow motion of regulation, which will never keep pace with the 1001 ways they'll find to cherrypick clients, stall or refuse payments, etc. What's more, there will be zero appetite for pursuing additional reforms for the next 5-10 years minimum.

It's a shame Ezra has contributed to the conventional wisdom that public option wasn't critical, but it's even more of one that Obama has. Shame on them both. Meaningful, *structural* health care/insurance reform was the brass ring establishment Dems have asked us to wait for for years -- and have used to undermine other issues from torture to impeachment to Iraq: "we have to stick together, we have to have a majority so we'll reform health care." This looks more like an aluminum pull tab to me, and I'm disgusted.

the point is that once you get a public option into the system it is impossible to get out and you can make it do whatever you want later on so at least be honest with everyone what the intent is. The intent is to get the most watered down product in that anyone can support and then once its in to have it do whatever you like in respect to setting prices, competing unfairly (ie not paying premium taxes, keeping reserves on hand) and being subsidized by the taxpayer.

Hasn't medicare been changed over the years? Didn't they just pull out a 21% reduction in doctor charges to appease the AMA?

Ezra,
I realize it is not your style to think this way but the public "option" (not a public plan) functions as a largely useless diversion for those to the left of Obama while he strikes deals with the industry and conservatives to get "something" done in the area of health care using the methods with which he is apparently comfortable.

A public plan only will work if it is large, involves cross-subsidies inclusive of using tax dollars, and can take a systemic view of the health care system in cutting costs. The public "option" is a cowardly way of co-opting the single-payer movement which is now split around this issue.

Alternatively Obama could have chosen heavy regulation (heavier than proposed) of the insurance industry which converts a part of their business into a non-profit one (the basic mandated insurance part), while allowing various supplementary insurances to be for-profit.

He is caught between the two alternatives because of a lack of clarity in his thinking and his dependence on the notion of competition to bring down costs. Competition doesn't work so well in health care for a variety of reasons:

"Ezra - Obama didn't discuss the public plan in that way because he can't. It's simple, a public plan that pays 20-30% less than private insurers = government takeover of health care. This is the public's biggest fear. People aren't stupid. Where does that 20-30% savings come from? Paying doctors and hospitals less OR restricting treatment (rationing). "

(1) You're vastly overestimating the public's familiarity with the details of health care reform. Polls show that two-thirds of American are confused by the health care debate, so I doubt they're familiar with the reimbursement mechanisms of the public option, much less understand the consequences of them.

(2) It's highly unlikely that the public option, as currently structured in the House bills that have passed, will put private insurance companies out of business. For one thing, as Obama pointed out last night, there are strict limits on who can enroll in the public option. The CBO estimates that only 9-10 million people will be enrolled in the public option by 2019, so the market power to push out private insurers just isn't there. Also, while the public option plan will have advantadges in being able to negotiate lower prices from providers, it will also be disadvantadged by the likelihood that its users will probably be sicker & older than the general population.

2) It's highly unlikely that the public option, as currently structured in the House bills that have passed, will put private insurance companies out of business. For one thing, as Obama pointed out last night, there are strict limits on who can enroll in the public option. The CBO estimates that only 9-10 million people will be enrolled in the public option by 2019, so the market power to push out private insurers just isn't there. Also, while the public option plan will have advantadges in being able to negotiate lower prices from providers, it will also be disadvantadged by the likelihood that its users will probably be sicker & older than the general population.

Posted by: PeterH1 | September 10, 2009 4:04 PM | Report abuse

PeterH1,

and that is why they call it a trojan horse. Because it can be timid at first and then be adjusted as we go along to do the liberals bidding.

PeterH1 - i agree that the public is not familiar w the details of reimbursement in the public option. But i think that if Obama were to make Ezra's case for the public plan HE would be vastly over-estimating the public's familiarity w the details. What the public is familiar with is the idea that if the public option undercuts insurers by 20-30% then it will lead to a gov't "take-over" as it druves them out of business. Any policy that can be linked to a gov't take-over is a political loser.

And i'd say to your pt #2 - it doesn't matter. government run insurance plan = eventual gov't takeover of healthcare (or can be easily portrayed as such by Republicans). That's why he can't talk about it as Ezra suggested.

Peter H1, you are correct. A public option won't be a government takeover of healthcare. See for example Australia. If there is a public option, the market will move toward an economic equilibrium in which private insurers can make profits by offering coverage for your gold-plated lifestyle. It's just basic economics.